Those attempting to reverse a decision of trustees have, since 1975, invoked “the rule in Hastings-Bass”. This has been used in the pensions context since the 1989 case of Mettoy, often as an attempt to avoid having to meet the strict evidential requirements of a rectification claim and in family trust cases where incorrect or incomplete tax advice has been given.
The (now former) rule in Hastings-Bass was:
Where a trustee acts under a discretion, but the effect of the exercise is different from that which he intended, the court will interfere with his action if it is clear that he would not have acted as he did had he not failed to take into account considerations which he ought to have taken into account, or taken into account considerations which he ought not to have taken into account.
Interestingly the Court of Appeal found that the “Rule in Hastings-Bass” doesn’t come from Hastings-Bass at all – but was created by Warner J in Mettoy (based on a misunderstanding of Hastings-Bass).
Interestingly the Court of Appeal found that the “Rule in Hastings-Bass” doesn’t come from Hastings-Bass at all – but was created by Warner J in Mettoy (based on a misunderstanding of Hastings-Bass).
The Court went on to overturn the Rule, finding that it is not a correct statement of the law. The correct principle is that the duty of trustees to take relevant matters into account is a fiduciary duty, so an act done as a result of a breach of that duty is voidable. Where acts which were within the powers of trustees were said to be vitiated by their failure to take into account a relevant factor, a beneficiary would have to show a breach of fiduciary duty on the part of the trustees and that could not be done where the trustees acted on apparently competent advice.
A consequence of this case is that a challenge to the exercise by trustees of a discretionary power, may need to be brought by a beneficiary alleging a breach of fiduciary duty – so it may mark the end of Hastings-Bass type claims being tacked onto an action for rectification (or used as an alternative to rectification). Such cases will be unlikely to be successful where the Trustees have taken expert advice before exercising their discretion. It might in rare cases be appropriate for the trustees to take the initiative in the proceedings, for example where they need to seek directions from the court if a beneficiary alleges breach of trust but does not bring his own proceedings. Another consequence of this case may be an increase in negligence cases against professional advisers – although this can be difficult in pensions because of the complexities of causation and loss.
